Junk quiet, secondary heavy as CPI print rattles markets; recent deals struggle

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 13 – In the wake of Monday’s massive $6.2 burst of new issuance – the biggest primary market session in almost three years – the new deal machine was parked along the curb, on Tuesday.

The active forward calendar remained empty.

A hotter-than-expected Consumer Price Index report, with its implications for central bank monetary policy, set off selling in a big swath of the U.S. capital markets on Tuesday, including the high-yield bond market.

However, sources canvassed during the session knew of no deal announcements that were withheld on Tuesday due to market conditions.

The hot CPI report notwithstanding, trailing Monday’s huge burst of issuance, an inactive Tuesday primary market had been a distinct likelihood in any event, they said.

The appetite for new high-yield issues, which has been robust since the new year got up and running, may be ebbing a bit, market sources say.

The year to mid-February has already priced $43.5 billion of issuance, the greatest amount for that interval since the record-setting year of 2021, which had $76.3 billion to Feb. 14, according to Prospect News data.

A couple of market sources have referenced “investor indigestion” during recent conversations.

Meanwhile, it was a heavy day in the secondary space with the CPI report further altering the market’s rate-cut expectations.

While March rate cuts have largely been off the table since the Federal Open Market Committee’s January meeting, May and June were still a matter of debate.

However, with the latest CPI figures reflecting an unexpected uptick in inflation, the market is now grappling with a higher-for-longer scenario with rate cut expectations now being pushed back to the second half of the year, a source said.

Treasury yields jumped with the 10-year closing the day up 13.1 basis points, or to 4.317%.

The cash bond market sank about ½ point with year-to-date returns again turning negative.

“The market was ugly today,” a source said.

Sellers were active in the space with EFTs circulating several large bids-wanted-in-competition lists.

New paper remained in focus; however, the deluge of deals to price during Monday’s session were struggling under the heavy market conditions.

TransDigm Inc.’s two tranches of first-lien senior secured notes (Ba3/B+) sank to a 99-handle in heavy volume with the outsized demand for the notes doing little to alleviate the selling pressure in the secondary space on Tuesday.

Sally Beauty Supply LLC’s 6¾% senior notes due 2032 (Ba2/BB-), AmWINS Group, Inc.’s 6 3/8% senior secured notes due 2029 (Ba3/B+), and CNX Resources Corp.’s 7¼% senior notes due 2032 (B1/BB/BB+) were also struggling and closed the session below par.

Amer Sports Co.’s recently priced 6¾% senior secured notes due 2031 (B1/BB) gave back most of their gains on Tuesday with the notes now wrapped around their issue price after jumping to a 101-handle on the break.

TransDigm under water

TransDigm’s two tranches of first-lien senior secured notes were struggling in the aftermarket despite playing to massive demand during bookbuilding.

TransDigm’s 6 3/8% senior secured notes due 2029 and 6 5/8% senior secured notes due 2032 were both trading in the same context.

The notes traded in a range of 99 to par during Tuesday’s session with both tranches set to close the day in the 99 3/8 to 99 5/8 context, a source said.

Both tranches had about $200 million in reported volume.

TransDigm priced a $2.2 billion tranche of the 6 3/8% notes and a $2.2 billion tranche of the 6 5/8% notes at par in a Monday drive-by.

The 6 3/8% notes printed at the tight end of yield talk in the 6½% area; the 6 5/8% notes priced at the tight end of yield talk in the 6¾% area.

The deal came to market on the back of $1 billion of reverse inquiry and played to $9 billion of demand across both tranches, which was skewed to the longer-duration tranche, sources said.

Struggling

New and recent deals were struggling under Tuesday’s heavy market conditions with the deluge of drive-by deals to price during Monday’s session all closing the day below par.

Sally Beauty Supply’s 6¾% senior notes due 2032 traded in a range of 99 1/8 to par 1/8 during Tuesday’s session.

The notes settled in to the 99¼ to 99½ context heading into the market close, a source said.

There was $62 million in reported volume.

Sally Beauty Supply priced a $600 issue of the 6¾% at par in a Monday drive-by.

The yield printed at the tight end of the 6¾% to 6 7/8% yield talk.

AmWINS’ 6 3/8% senior secured notes due 2029 also traded in a range of 99 1/8 to par 1/8 throughout the session.

They were trading in the 99¾ to par context heading into the market close, a source said.

There was $80 million in reported volume.

AmWINS priced a $750 million issue of the 6 3/8% notes at par in a Monday drive-by.

The yield printed at the tight end of yield talk in the 6½% area.

CNX Resources’ 7¼% senior notes due 2032 traded in a range of 99¼ to par with the notes closing Tuesday’s session in the 99½ to 99¾ context, a source said.

CNX priced a $400 million issue of the 7¼% notes at par in a Monday drive-by.

The yield printed at the tight end of the 7¼% to 7½% yield talk.

Amer gives back gains

Amer Sports’ 6¾% senior secured notes due 2031 gave back nearly all gains made in the secondary space on Tuesday with the notes closing the day wrapped around their issue price.

The 6¾% notes sank ¾ to 1 point in active trade.

They were trading in a tight range between par and par ¼ throughout the session.

There was $30 million in reported volume.

Amer Sports priced an $800 million issue of the 6¾% notes at par on Feb. 9 in a deal that was described as a blowout.

The notes surged to a 101-handle on the break and, while softer on Monday, continued to trade at a strong premium.

The sell-off in the notes was a product of the market environment, a source said.

Fund flows

The dedicated high-yield bond funds had $350 million of net inflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $224 million of inflows on the day.

Actively managed high-yield funds had $126 million of inflows on Monday, according to the market source.

Indexes

The ICE BofAML US High Yield index fell 58.9 basis points with the year-to-date return now negative 0.363%.

The index added 4.3 bps on Monday.

The CDX High Yield 30 index sank 40 bps to close Tuesday at 105.75.

The index added 11 bps on Monday.

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